Around 7,000 debtors in Scotland every year decide, as opposed to going bankrupt, that the Protected Trust Deed is the best solution for them when they are unable to resolve their debt. However for some time the Scottish Government had real concerns about how little creditors were getting in dividend returns from these Protected Trust Deeds. These were originally put in place for the benefit of creditors to get at least some return of monies owed to them, but the system appeared to be failing. Many creditors were ending up with very little, and some with no return at all.
Trustees were charging an exorbitant amount of money for their services, and along with rising costs, receipts at the end of the Trust Deed period of four years were leaving little or nothing then to be given back to the creditors. Due to this the Government decided that the issue needed to be addressed, and that reforms were needed.
In December 2013 these changes were introduced, but how do they affect you the debtor? In the first instance if your Trust Deed was signed before November 28th, 2013 then the changes do not apply to yourself at all. The changes only apply to those Protected Trust Deeds signed after this date, and those that are applying now or that apply in the future.
In previous years there was no lower limit to apply for a Trust Deed. Due to the implemented changes, now if your debt is below £5,000 you will now no longer be eligible to take this avenue to resolve your debt. Those who wish to apply now must have over £5,000 of unsecured debt to be able to enter into a Trust Deed.
If you are using the equity that is in your home as part of the Trust Deed then the value of your home will be set at the beginning of the Trust Deed, whereas previously it had not been released until the end.
If a person is on welfare, social security, benefits then no money can be taken from this to pay towards the regular contribution. This income however will be taken into account when looking at a debtor’s total income to assess and see how much they can afford to pay. Contributions however will only be taken from other sources of income, this money will remain untouched.
If a debtor finds themselves in a position whereby they can pay back the money within the four years that are set for a Trust Deed, then the Protected Trust Deed may no longer be protected. Creditors who did not agree to a Trust Deed in the past were still bound by the terms of it, if other creditors had agreed to it. Previously they had no right to try to recover monies due under this protection, even if the debtor found themselves financially better off and was able to pay. This is now not the case. If the debtor is in a position to pay monies due within the four years then creditors can, and undoubtedly will, apply to recover the monies owed to them. The protected status in effect no longer protects you. Therefore those that are aware that they can, or that they may be able to repay it, within this time limit should not enter into a Trust Deed at all. There are other, more appropriate, solutions that can resolve the situation for debtors that are in this position.
Pre-trust fees can no longer be charged separately these must now be added to the debt, and treat in exactly the same way.
Another change is that Trustees can now only charge a fixed and upfront fee, whereas prior to the changes the majority charged an hourly rate that meant Trustees fees could be exceptionally high at the end of the four year term. Now the trustee must tell the creditors how much this fixed upfront fee will be that they intend to charge, and they must do so before the creditor has agreed to the Trust Deed. Although this change does not affect the debtor as such, it could mean in certain cases that the creditors will refuse to agree to the Trust Deed if the charge for the Trustee is too high. Also once in place if the Trustee needs to increase any fees due to unforeseen circumstances, and for whatever reason, then they must get the approval of creditors to do so before they can implement this increase.
So in a nutshell how will these changes affect debtors? It is thought many now will resort to bankruptcy due to all of the changes, more so because it has made this option much less accessible to many debtors. Due to the limit of £5,000 being imposed, it is no longer an available option to those with debts that are under this amount. A Protected Trust Deed is still a good option as opposed to bankruptcy for those with debts over £5,000, who find themselves in a position where they are unable to resolve the situation at all. With the Deed You will pay an affordable repayment to your creditors over a four year period, and at the end of this period your debt is then written off. You are debt free completely. However if you believe, or know, that within this time frame that you will be in a better financial position, or that you will be acquiring assets and would be able to pay the debt, then it is no longer viable to take this option. The Trust Deed would not remain protected. Your creditors could, and most probably will, apply to reclaim the monies owed to them. It is always best to seek impartial advice from a reputable source, such as the Citizens Advice Bureau, before deciding on a Protected Trust Deed. They can advise you as to the best way forward and let you know what they believe to be the best solution for you in your particular circumstances